“Reliance” in Class Actions Clarified by Supreme Court

The Supreme Court’s March 27 decision in Comcast v. Behrend settled an ongoing dispute between Justice Scalia and Justice Ginsburg. A month before the Court had affirmed certification of the securities class in Amgen, Inc. v Connecticut Retirement Plans and Trust Funds.
In Amgen, the putative class sued for allegedly false and misleading statements and omissions concerning the safety, efficacy, and marketing of two drugs. The Amgen Court, with Ginsburg in the majority, applied the precedent of Basic, Inc. v. Levinson (1988), and found class-wide reliance in a fraud-on-the-market case, according to which a securities plaintiff who purports to represent a class can satisfy its burden of proving reliance without delving into the decision process of each purchaser.

The fraud-on-the-market theory recognizes a rebuttable presumption of reliance on a material representation made to the general public. As the Court explained, an efficient market presumes that individuals will rely on material misrepresentations in buying and selling securities. Scalia’s dissent called the fraud-on-the-market rule a court invention.

Amgen raised questions as to the showing required at the class certification stage beyond securities cases. Were it not for the Comcast decision, it is likely that aggressive class action plaintiffs would have seized on Justice Ginsburg’s language that the issue of certification is not a “license to engage in free-ranging merits inquiries …” With Comcast, Scalia’s view has prevailed, and the securities law implications of Amgen will not be a benefit to plaintiffs.